Cursive
Financial forecast and perspectives 2010

By Michael Carter, CEO

December 2009

The start to the year was penalized by lingering economic uncertainties, which affected investors’ appetite for Kazakhstan. Locally, the collapse of two large banks, the devaluation of the tenge and falling real estate prices concerned investors the most. Internationally, many investors (including Moscow-based funds) preferred to focus on their core business and were not ready to come back to a frontier market like Kazakhstan. But once investors realized that commodities prices were rebounding durably (with the Brent having surged from US$42 to over US$70 per barrel), the appetite for Kazakh assets improved dramatically. Also, both government-related entities and many producers found themselves in a much healthier financial situation, which helped to lower Kazakhstan’s risk premium rapidly. Our business activity has strengthened throughout the year, in every market segment.

The most important event for our company was probably the US$2.6bn purchase of MMG by a joint venture (CNPC and NC KMG), executed on the stock exchange by Visor Capital.

As we predicted it as early as January this year, the Kazakh economy has been more resilient than consensus estimates in 2009. GDP should decline by a modest 2.0%-2.5% this year, in our view, which is a good performance relative to many industrialized countries, especially when taking into account Kazakhstan’s still considerable dependence upon commodities. Firstly, the country continued to benefit from large Foreign Direct Investments (FDI) and reasonably high income into the National Fund, which maintained its reserves at a robust level. Secondly, the depreciation of the Tenge was not too severe as to damage the banking system further, but was strong enough to allow mining companies to survive (and to preserve employment) in a difficult period of time. Thirdly, Kazakhstan benefited from Chinese investments at a crucial moment. Concerning 2010, we believe that it will be a transition year, with slightly positive GDP growth, possibly more if the situation of several large banks is sorted out. Though the anti-crisis program of the government should continue to sustain the economy in the near term, it is absolutely needed that banks start lending again, especially to small & mid-sized businesses, in order to generate broader economic growth. The financial industry has started to recover, and it is likely that bond issues, M&A and brokerage will all be stronger than in 2010. However, we are realistic and expect financial markets to be volatile, since the recovery is still fragile whilst valuations have become more demanding.

We have learnt that it is crucial to continue to invest throughout a business cycle. During the crisis, Visor Capital has made no redundancy plans. We have even continued to hire, though at a slower pace, and have met more international investors than we did in previous years, in order to convince them to invest in Kazakhstan and in Kazakh assets. We believe that those efforts have started to pay off, since Visor Capital is now clearly identified as THE leading Kazakh investment bank by both local and international investors. This year, we have been awarded #1 Investment bank in Kazakhstan by EMEA Finance magazine, and investors voted us #1 Research Team in Kazakhstan in this year’s Thomson-Extel Surveys. In 2010, we will continue to invest in the key areas of our business, and will continue to make no compromise between high local expertise and international quality standards

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